Calgary Condo Market Outlook for 2009

Are you thinking of buying or selling a condo in Calgary? Enhance your decision-making with the latest information on Calgary condos.

According to the CMHC, as of October 2008, there were 7411 apartment + other units under construction. (see dwelling type definitions at end of article)

That does not include the 2,777 Single-detached, 684 semi-detached, or the 1,002 Row dwellings – which brings the total to 11,872 homes currently under construction in Calgary. (Source: CMHC Housing Information Monthly, November 2008, Pg. 19, Table A5-1)

You have to take into account how many of those units are pre-sold. And of those that were pre-sold, how many were purchased by speculators intending on resale. (Remember, these projects began months or years ago when market conditions were much different) In the past, projects would go ahead with just half of the units pre-sold. That number now is closer to 75 per cent, meaning getting projects off the ground has become much more difficult. Source

“As for new construction I think, definitely, the market got ahead of itself a bit. So now we’re seeing a correction. It might mean some projects are delayed. It might even mean some are cancelled,” said Todd Hirsch, senior economist with ATB Financial. “But this is part of the normal kind of correction mechanism that takes place in a market when things get a little ahead of themselves.”

He continues, “We’re in a market that has slowed from the peak and . . . the biggest oversupply situation we’re seeing in Calgary’s residential market is the condo side.” (Source)

The recent RE/MAX Housing Market Outlook 2009 echoes the same sentiments stating, “Calgary’s high-rise condominium market, propped-up by speculation in recent years, is more vulnerable to new market realities. Thousands of new units are expected to come on-stream in 2009, which could create a glut of listings. Some developers have already moved to mitigate their losses by stopping new projects.” (Source)

Condo Projects Cancelled

This over-supply of condos has caused developers to either delay or stop construction on their projects.

Resiance Corporation, suspended construction because of rising costs. Spokesman Shael Gelfand says, “It’s with deep regret we announce, at least temporarily, Gateway Midtown has gone into suspension. It’s primarily due to rising costs for labour and for materials. It’s just made it too expensive.”

The decision affects a lot of buyers and investors. More than 500 of the 650 units have been sold. Their deposits are now being held in trust at a lawyer’s office until a decision is made whether to proceed with the project. (Source)

“A Bridgeland condo project, once hailed as a shining example of inner-city development, is being put on hold because of the falling real estate market.

The first condos in the Crossings at the Bridges, a 142-unit project that’s part of the landmark Bridges development, were due to start being sold in February, with construction to follow shortly after.”

Update: January 2009 – Arriva Towers

“John Torode, president of Torode Residential –which is constructing numerous condos and commercial buildings in the Beltline and has completed the arriVa tower that signals the start of the rejuvenation of Victoria Park–has changed his plans to build four condo towers in arriVa’s complex.

He had cancelled the fourth tower earlier and now has announced the third tower will be changed instead to a smaller boutique hotel.” (Source)

Update: April 7, 2009 Arriva Tower, number 2, is now on hold as the developer, Torode, seeks bankruptcy protection. Work has stopped on the 42-storey second tower of the Arriva condo project which has about 60 per cent of its 221 units pre-sold. (Calgary Herald, April 7 2009)

For a great look at the proposed projects, under construction, or on hold, take a look at Skyscraperpage.com

Condo Inventory

The number of vacant/new listings on MLS points to the amount of speculation that was involved in the Calgary condo market. More than 1 in 3 condos on the market at November’s month end were vacant (922 out of 2399) Over 300 of those vacant were built in 2007-2008.

There are more new/vacant condos on the market today than the entire month-end inventories of Jan-April 2007 (Jan: 886, Feb: 654, Mar: 726, April: 898)

For a “balanced market,” high inventory levels would need to be offset by increased sales volume to create about a 2 to 3.5 month absorption rate. As of month-end November 2008, Calgary condos had an absorption rate of 8.4 months.

Typically, inventory is the lowest during the winter months which makes me very wary seeing the current level amidst very sluggish sales and a backdrop of economic uncertainty.

Average & Median Prices

If you have any questions or are thinking about buying or selling real estate please feel free to contact me. In the meantime, I’d love to hear your viewpoint on the real estate market in Calgary. All respectful comments and viewpoints are appreciated.

In Alberta, “as stiff headwinds blow on the provincial economy and erode consumer confidence, homebuyers will be reluctant to step into play until affordability improves more significantly,” said Robert Hogue, senior economist at RBC. “The province’s housing affordability conditions still have a fair way to go before returning to long-term averages.”

“As concerns mount about the economy, spurred by the sharp drop in energy prices that sent shivers down homeowners’ spines, the housing markets in both Calgary and Edmonton are expected to retreat even further in 2009.”

———-Mike says: One thing I don’t agree with the report is, on Page 6, where they use “Sales to New Listings Ratio” to calculate whether or not a city is in a Balanced/Buyer/Seller market. Hypothetically, if everyone in the entire city listed their house, and there were no new listings, their chart would show the city as being an extreme Seller’s market, which is of course absurd.

A much more accurate method would be “Sales to Total Inventory Ratio” giving you an absorption rate in days, months, weeks, or (ack!) years.

I think this report shows a more accurate description of what is about to take place in Calgary.

Royal Lepage’s market outlook of a 1%average home value increase in 2009 is ludicrous. This is the same company that predicted a 3.5% increase last year, when we really received a 6% decrease. If you take that ratio, Royal Lepage is really expecting about a 10% drop in the market. Never listen to a Realtor when it comes to market outlooks. Talk to an investor.

The majority of the major building contractors left Calgary to go to Saskatchewan in 2007. Do you think that should tell you something? The new home prices have dropped around 25% in the last year. I looked at 1 house selling last year for 1.2 mil now listed at 850,000. Another sold last year for 575,000 and can now be built for 425,000. These are not isolated cases. There are 1,000’s of bare lots and no buyers. The builders own the land and need to recover their money. These price drops will soon hit the used market as well.

Don’t be surprised if Calgary is down 25% by the end of the year and Condo’s even further.

Mike says: Thanks for your comments, Shaun. For the record, Royal Lepage is predicting minus 1% for Calgary, but yes, they were off on last years prediction too.

Homburg Invest Inc., said it doesn’t want to sit on unsold condos and Tuesday it announced its program for the 19-storey Castello development at 530 12th Ave. S.W.

In the 106-unit building, there are 42 remaining to be sold…Prices have already been slashed by an average of $100,000 per unit in the condo tower with 60 per cent of the 106 units occupied. Prices range from a low of $400,000 to $1.1 million.

In February, a national housing report said new unsold condominiums are becoming a concern in the Calgary market.

The Altus Group Housing Report said most of the unsold units in Calgary are already completed or under construction and the expected decline in new condo apartment sales this year could lead to a “sizable” increase in the number of completed and vacant units.

Owners of a Calgary condo project could be found in contempt of court if a gaping Beltline hole isn’t filled after the City of Calgary won a court injunction Wednesday. Citing growing concerns about the safety of the Astoria on Tenth site, city lawyers earned a judge’s order demanding the hole that’s around five storeys deep be filled.

It’s only the second time the city has won a court injunction against a project’s developer since the downturn began. The first came earlier this year against the owners of Sky Tower, a proposed highrise condo building at 201 10th Ave. S. W.

A high-profile residential condominium tower that was under construction near Stampede Park has been put into receivership.

A receiver was appointed earlier this month for the second phase of the Arriva condo project in the old Victoria Park neighbourhood.

The project was put on hold in April when the owner of the site, Torode Realty Advisors Ltd. filed for protection under the Companies’ Creditors Arrangement Act as the company sought alternative financing.

According to the receiver, about 50 per cent of the 221 units had already been sold in the 42-storey second tower, with deposits totalling about $6 million.

Construction is progressing, says Rany Klapstein (POV President) adding that the first tower is up to grade and the underground parkade is finished.

“Based on the response we’ve had so far with the price point, I think we are on the right track,” says Klapstein. “We think we will hit the right number in the sales test by the new year and we hope to go vertical in the spring of 2010.”